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By Dan S. Barnabic, July 15, 2015

After extensive research based on which I wrote numerous articles on the subject of condominiums — their inherent ownership problems, expected physical longevity, and the role they play as an alternative housing arrangement — it became evident that 15 years from the time they are built, condo complexes enter a phase where major elements start giving up, requiring expenditures that, in many cases, may not be covered by their fiscal budgets or reserve funds.

6 Important Rules That Will Preserve the Value of Condos

Important rules

This is where the condo owner may be faced with the perils of unexpected and considerable demands for special assessments to replenish depleted budgets and reserve funds. Such situations may very quickly turn into nightmarish scenarios. Unable to collect special assessments from their unit owners, the condo corporation borrows money from outside sources, giving birth to the common loan, guaranteed by the complex’ receivables. Such a complex, especially during adverse market conditions, becomes prone to being wound down, unable to meet its financial obligations to carry or, otherwise, obtain such a loan.

You may think that the present market condition in Canada is great, after reports of record breaking price increases in Vancouver and Toronto. Bear in mind that they are mostly fuelled by foreign Chinese buyers and local speculators, still unloading overvalued real estate to naïve buyers. Since China’s economy slowed down, the party may soon come to an end (at least temporarily). Unsold condo inventory is on the rise. Thousands of new condo units are coming on the market, setting the stage for oversupply.

I wrote a book called The Condo Bible (available at your local library) for the sole purpose of explaining the pros and cons of condo ownership. It provides practical solutions to changing or amending the regulations and by-laws of condo corporations, to safeguard the interest of unit owners, and to enhance the value of their units, especially during times of economic hardship.

Here is my list of the most pressing changes or rules that regulatory authorities and condo corporations should abide by or implement to preserve the value of condo units:

1. One proxy, one vote.

This should become a norm and the law. The biggest problem of not being able to remove undesirable board members is the fact that such members make arrangements with unit owners that may be absent or, otherwise, not interested in the day-to-day operation of the complex, to vote for them via proxy. By taking advantage of a multitude of such proxies for extended periods of time, they get elected by a majority, remaining on the board “forever.” Under present rules, this renders genuinely concerned unit owners wishing to remove dysfunctional board members, hopeless. Board members, or any other unit owner wishing to become elected, should be restricted to one proxy vote only.

2. Assembly of Forum to call for Emergency General Meeting of unit owners.

Acts regulating the condo industry should be amended, enabling only 25 per cent of unit owners in a complex to form a necessary Forum to call for Emergency General Meeting of all unit owners, at any given time. The present rule of requiring 85 per cent of unit owners for speedy general meetings is practically unachievable.

3. Licensing and bonding property managers.

Apart from being compelled to be licensed, bonded and audited, the property manager’s decisions for replacements, repairs, selection of contractors and suppliers, should be regularly scrutinized in the most rigorous way, preferably by forensic accountant(s). By making self-serving decisions, many rogue property managers choose more expensive trades and employ other unfair business practices, depleting the condo corporation’s budgets in the process.

4. Capping common loans.

Common loans should be capped at 25 per cent of the yearly budget. Anything above that may lead to over-borrowing, causing serious consequences. Many owners are not aware of the dire consequences that default of a common loan can cause. In troubled complexes, where unit owners fall behind on their monthly maintenance fees, a common loan may easily go into default as well. The lender can step in and commence insolvency proceedings. This is a precursor to the eventual winding down of a complex.

5. Money-back guarantee.

Any new condo complexes that have not sold at least 90 per cent of their units should not be allowed to cash the proceeds of their already sold units. Upon sale, the individual deed to the unit should be kept in escrow until 90 per cent of the units are sold. If the complex is not 90 per cent sold within 2 years from the issuance of the occupancy permits, all deposit monies should be returned to buyers who so desire, upon demand. In the interim, buyers can move in by paying the monthly maintenance fees, plus the occupancy payment fee (equivalent to the intended mortgage payment) for the balance of the selling price.

6. Renting out units.

Rental units should be capped at 10 per cent for each complex, save for complexes which are located in exceptionally desirable touristy areas, often used as hotel/condo residences. A heavily rented out complex becomes undesirable to potential buyers as units lose value and banks usually refuse approving mortgages to new buyers.

Ontario’s Minister of Government and Consumer Services, Hon. David Orazietti MPP, introduced the government bill, “Protecting Condominium Owners Act,” in the provincial legislature on May 2015. Let’s hope it will be followed-up when the House re-opens in September. The bill calls for the establishment of the Condominium Management Services Act through two new delegated Administrative Authorities. One would require minimum qualifications, mandatory training standards and a code of ethics for condo managers, along with a cheaper and faster means of dispute resolution compared to the courts. It would also provide a registry for condo corporations and a single source of reliable information. It’s a step in the right direction, but in all of its 167 pages, unfortunately, it does not address all the necessary changes mentioned in this article.